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Royal Mail delivers big share rise and value doubts

The arrival of the 500-year-old postal service on the stock market was met by feverish activity. Photo: Dave Thompson/PA Wire

A roaring first day's trading in shares in Royal Mail has opened the Government up to accusations that it undervalued the company before its stock market launch.

Shares in the privatised postal service jumped up 38% to £4.55 - a market value of £4.55 billion - after being launched at a price of £3.30 for conditional trading ahead of the formal launch on Tuesday.

The sharp price rise led to claims the 500-year-old company's valuation had been bungled by ministers.

Prime Minister David Cameron defended the sell-off as an "excellent deal for taxpayers", but Labour leader Ed Miliband said taxpayers had lost out in the launch.

It's a fire sale of a great institution at a knock-down price. It has been undervalued for taxpayers and undervalued for customers. It's a dogmatic privatisation by this government and they have made it even worse by undervaluing it.

– Ed Miliband

Business Secretary Vince Cable rejected the accusation of undervaluing - saying it was consistent with other European countries - and played down the flurry of first day trading as "froth and speculation".

He said today's inflated price was perfectly normal for a big flotation and said the true value could only be judged in the coming months and years, rather than hours.

The Royal Mail privatisation has proven controversial within the postal service. Credit: Lewis Whyld/PA Wire

Mr Cable's defence fell on deaf ears for Bill Hayes, the leader of the Communication Workers Union, who hit out at the Coalition minister.

He said Mr Cable was a "clever man (who is) responsible for one of the stupidest decisions of a British government ... the privatisation of Royal Mail."

Protesting outside the London Stock Exchange, he said the flotation was a "tragedy" and that the union would ballot members next week for strike action.